Quick Facts

Malta’s economic freedom score is 66.5, making its economy the 58th freest in the 2015 Index. Its overall score is up by 0.1 point from last year, with improvements in freedom from corruption, labor freedom, monetary freedom, and trade freedom offsetting declines in the control of government spending, business freedom, and fiscal freedom. Malta is ranked 28th out of 43 countries in the Europe region, and its overall score is below the regional average but above the world average.

Unlike some other eurozone countries, Malta has advanced its economic freedom over the past five years. A 0.8-point improvement since 2011 has been led by gains in seven of the 10 factors, with losses only in business freedom and labor freedom. Dependent on imports for most foodstuffs, Malta has created a relatively open economy with low tariffs and efficient investment rules.

Budget shocks have alerted authorities to serious structural problems that stem largely from an inefficient bureaucracy, a weak public pension system, and persistent fiscal imbalances. Taxes remain high, and government spending makes up over two-fifths of the domestic economy.

Background

Malta joined the European Union in 2004 and the eurozone in 2008. Labour Party leader Joseph Muscat won the March 2013 elections and became prime minister. With few natural resources, Malta imports most of its food and fresh water and 100 percent of its energy. The economy depends on tourism, trade, and manufacturing. Well-trained workers, low labor costs, and membership in the EU attract foreign investment, but the government maintains a sprawling socialist bureaucracy, with the majority of spending allocated to housing, education, and health care. Unemployment is relatively low. Early in 2013, excessive public borrowing led to an EU warning to reduce the budget deficit, which exceeded EU guidelines. Since then, the government has taken steps to reduce the deficit. Substantial immigration from North Africa remains a concern.

A 2013 Eurobarometer survey revealed that 83 percent of Maltese saw corruption as a major problem in politics and business. Malta still lacks appropriate institutions to implement and monitor anti-corruption activities. The judiciary is independent both constitutionally and in practice. Property rights are protected, and expropriation is unlikely. Foreigners do not have full rights to buy property.

Malta’s individual and corporate income tax rates are 35 percent. Other taxes include a value-added tax and a capital gains tax. Tax revenue is equal to 35.2 percent of domestic income, and government expenditures are equivalent to 43.1 percent of gross domestic product. Public debt equals 72 percent of total domestic output.

Malta has adopted transparent and effective regulations to foster competition, but the pace of reform has slowed. Business regulations are relatively straightforward and applied uniformly most of the time. The labor market remains relatively rigid. Although it maintained macroeconomic stability during the eurozone crisis, Malta faces deteriorating public finances and needs to reform pension and health care subsidies.

EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist, the EU is relatively open to external trade. Malta generally welcomes foreign investment, but some state-owned enterprises have yet to be privatized. The financial sector is dominated by banks. The large banking sector, which consists of subsidiaries of foreign banks, has shown notable resilience.